Working Papers,
National Institute of Economic Research

Abstract: By using an applied general equilibrium model of the Swedish economy, this paper examines how an in-troduction of a kilometre tax will affect economic growth (GDP), industry structure and emission levels of nitrogen oxides (NOx). According to our findings, the GDP will decrease by 0.1-0.3 per cent and NOx emissions by 0.4-0.8 per cent (assuming fixed emissions coefficients) during the 2006-2020 period. Thus, we find that economic growth and NOx emissions decouple due to an introduction of a kilometre tax. The projected reductions of NOx emissions are, however, minor relative to the Swedish objective for 2010. Road transports will overall be substituted by sea and rail transports and industry structure will change in favour of industries less dependent on heavy road transports. The emissions reductions will, however, be substantively larger if the kilometre tax also ends up inducing technological development able to expedite the adoption of cleaner vehicles. Consequently, this would reinforce the decoupling effect. Furthermore, we compare our findings with the results of others, who used partial equilibrium or bottom-up approaches to study the effects of a Swedish kilometre tax. The effects on production are more signifi-cant in the applied general equilibrium framework, but structural changes point in the same direction for all the studies compared.

Keywords: static general equilibrium model; EMEC; partial equilibrium model; bottom-up models; kilometre tax; transport policy; environmental policy

JEL-codes: C68; D20; H23; R48

40 pages, December 15, 2007

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